Sales progress in mainland satisfactory, but may slow down due to policies Bloomberg Reuters POEMS 0173.HK 0173.HK 0173HK Industry: Local property Rating: Buy, CP: HKD3.90, TP: HKD4.40 Phillip Securities (Hong Kong) Phillip Securities Research Company Profile K.Wah International Holdings Limited is a integrated property developer and investor. KWIH has a presence in HK, Shanghai, Guangzhou and Southeast Asia, property portfolio including residential, Grade A offices, hotels, serviced apartments and retail spaces. KWIH's JV projects in HK include Marinella, Providence Bay and The Coronation. KWIH's property development projects are mainly located in the first-tier China cities such as Shanghai and Guangzhou. In China, the coming projects are Shanghai The Place, Upstream Park and Grand Summit. Investment rationale The Group reported strong growth in 2012, the core earnings climbed 2.4 times yoy to HK$4.127b. DPU was HK$15 cents, an increase of 50% yoy, mainly driven by a number of HK luxury sales booked, including Providence Bay, Providence Peak and Marinella. We expect 2013 focus will shift to the projects in Shanghai and Guangzhou, such as The Palace, Upstream Park in SH and Le Palais, J Metropolis in GZ. Chinese government is committed to dampen speculative demand and introduced some regulation rules, such as strict implementation of 20% personal income tax, second homes borrower's qualification check and ban third home loans. We expect these policies have more impact on demand for high-end properties. Fortunately, first phase of The Palace in Xuhui District, a traditional luxury residential area, has already sold more than 60% of the units and will be booked in 1H2013. The projects in GZ are at lower end and target at end-users which is expected to have little impact from policies. Source: PSHK, Company report, Bloomberg Analyst Dennis Wu denniswu@phillip.com.hk +852 2277 6679 The Group actively acquire sites in 2012, including 3 sites in HK for total HK$5.162b (including joint ventures), 1 site in Pudong District, SH for RMB671m and 1 site in Xihu District in Dongguan for RMB657m. The Group's gearing ratio was healthy at 21% in 2012, down 8% compared with 2011. We expect the Group will continue to seek opportunities to increase its land bank. 1 of 1
Fig.1 2013 major projects Source: Company report, PSR Mainland properties sales progressing well but may be slowed down by policies In Guangzhou, the Group launched Le Palais and J Metropolis, with ASP of approximately RMB9,000 psm and RMB8,200 psm respectively. Le Palais sold more than half of total 303 units. J Metropolis, launched earlier this year, only sold about 20-30% of total 564 units. The progress is slower than we expected. In Shanghai, first phase of The Palace in Xuhui District, a traditional luxury residential area, has already sold more than 60% of the units with ASP of around RMB100,000 psm and sales will be recognized in 1H2013. Upstream Park in Minhang District has 1,424 salable units and already sold more than 70% of them with ASP of approximately RMB17,000 psm. In addition, the Group said it will launch Grand Summit at the end of 2013 or early 2014. Valuation Fig.2 2013 Dec NAV Estimate Source: Company report, PSR Fig.3 Historical dicount/premium to NAV The Group's sales progress in mainland is at satisfactory level, but it is expected to slow down due to the policies. We remain optimistic and expect after the market digest the policies, the Group would still show its competitive advantage in mainland by its well-known brand. Source: Company report, PSR, Bloomberg 2 of 2
We raised 2013 NAV per share estimate to HK$9.5 to reflect higher valuation of Galaxy Entertainment Group (27.HK), which the Group held 3.9% interest. With expectation of slower properties sales due to policies effect, we give a higher discount to NAV. With the long-term historical average of 53.6% discount, we give an "Accumulate" rating, target price of HK$4.40, decreased slightly by 3.5% from previous target price. Major risks Housing policies dampen demand China economy deteriorated, affecting demand for home purchase Great drop in home prices 3 of 3
Financial Status Source: Company report, PSR 4 of 4
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